Your Right to Know

Fixing a mistake on a credit report might have just become a lot easier — for some people.

The federal Consumer Financial Protection Bureau yesterday ordered the three national credit-reporting agencies and all of the companies that supply them with consumers’ credit histories to conduct real investigations of reported mistakes.

That means they can’t rely on their computer systems to do the job. Nor can they ignore the evidence that consumers supply in an effort to correct the errors in their reports.

“This is the first significant change (for those companies) ... to face consumers more directly,” agency director Richard Cordray told The Dispatch yesterday. “We’re now underway supervising the CRAs very directly. But the furnishers may not have sensed that urgency.”

The bulletin issued yesterday makes clear that credit-reporting agencies and the creditors must act like investigators rather than stenographers.

Consumer advocates called the directive a good first step.

“It won’t clean up this mess 100 percent, but it certainly will help,” said Chi Chi Wu, a lawyer with the National Consumer Law Center in Boston and a critic of the credit-reporting system.

The credit-reporting agencies speak through their lobbying arm, the Consumer Data Industry Association, based in Washington, D.C. Its spokesman did not return messages seeking comment.

Until last year, the largest credit-reporting agencies — Experian, Equifax and TransUnion — operated with little government oversight amid little public understanding of how they managed the credit histories of millions of Americans, some of whom are plagued by damning errors.

A Dispatch series in May 2012 highlighted how consumers couldn’t break through the system to correct mistakes that range from the benign, such as a misspelled name, to the financially crippling. In some cases, the consumers were listed as deceased and couldn’t prove otherwise. (The “Credit Scars” series is available online at Dispatch.com/credit.)

Last fall, Cordray’s agency began regulating the credit-reporting agencies. Federal officials have delved into their business practices and operations and now have the ability to hold them accountable for wrongdoing. Yesterday’s directive was the first public order to change the way they do business.

“They understand this is the new reality,” said Cordray, who is a former Ohio attorney general. “They are attentive to the issues we are raising.”

Before the reforms, the credit-reporting agencies and creditors traded information about consumers’ credit histories through a highly automated computer system.

When a consumer reported an error, the nature of the mistake was converted to a numeric code, mostly by contract employees overseas, and sent electronically to the creditor. No one reviewed the evidence, such as billing statements, canceled checks or other documents, to weigh a consumer’s case.

Once the creditor received the numeric code indicating the nature of the dispute, its computer would compare the information against what the credit-reporting agencies’ computers said. If the information was inaccurate in the creditors’ database, it remained inaccurate in credit reports.

The Fair Credit Reporting Act, a decades-old law that regulates credit reports, requires that the credit-reporting agencies investigate when consumers alert them to errors, but it does not spell out how an inquiry should be handled.

Now, that process has been clarified. Not only are creditors supposed to review consumers’ evidence, but they also are required to review internal records.

“It’s a step,” said Evan Hendricks, editor and publisher of the newsletter “Privacy Times” and author of the book Credit Scores & Credit Reports: How the System Really Works, What You Can Do. “We’ll see how big it is and how serious the creditors take it.”

Wu thinks the credit-reporting agencies have a separate responsibility to conduct an independent review of the investigation results.

“The CFPB itself had noted that nearly 40 percent of disputes involve debt-collection items,” she said. “A debt collector’s primary goal is to get paid, and credit reporting is a powerful tool to do that.”

The new directive, however, is unlikely to help the Julie Millers, Sandra Cortezes and Judy Thomases of the world, Hendricks and Wu said.

The credit history of each of the three women was mixed with that of another similarly named person, and all three needed lawsuits to untangle their identities. That problem is created by how the credit-reporting agencies store and retrieve information on consumers.

An Oregon court this summer awarded Julie Miller $18.4 million in punitive damages after Equifax’s computer deleted her Social Security number and then assigned her the number of a woman with the same name. Thus, her credit history merged into the other’s troubled credit history. She filed eight futile disputes with the credit-reporting agency over two years.

Cordray said his agency continues to peel back the layers of the complex operations of the credit-reporting agencies.

In the meantime, he urged consumers to check their credit reports for mistakes. “Only 1 in 5 check their credit reports,” he said. “That makes them more vulnerable to mistakes. You are needlessly leaving yourself at risk. It’s like leaving your door unlocked.”